| Q&A of the Week |
Determining Cause of Loss
A Washington subscriber recently asked the following question:
A hole was discovered in a client's pool super structure. They have an all risk policy. The insured believed ice fell off the roof and damaged the pool wall. The insurance company had an engineer review, and they advised that the trajectory was such that ice from the roof could not have damaged the pool. The pool is a saltwater pool, and the damage was not from the freezing of the water within the pool. We advised the adjuster that if it was not the ice, we are not aware of what caused the damage, only that it clearly occurred during the winter months. The adjuster advised that we must advise him of what caused the damage prior to them providing coverage. We feel that we should only have to report that there is a loss on the property and that unless the carrier can exclude it from the exclusions within the policy, they should pay for the damage. Who is correct? Must the insured have knowledge of what caused the damage?
ANSWER: You are correct. The homeowner just has to report the loss and cooperate with the carrier. If the carrier's engineer cannot determine the cause of loss, and the carrier cannot identify an exclusion, then the loss should be paid. There is no exclusion for mysterious damage to pool linings. The insured gets the benefit of the doubt, and the loss should be paid. |
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| Litigation Watch |
Legal Duty of Claims Adjuster
The insurer brought an action seeking a declaratory judgment that it had no duty to indemnify the insured in an underlying lawsuit. The insured's assignee later filed a complaint against the insurer and against the claims adjuster retained by the insurer for negligence. This case is Lodholtz v. York Risk Services Group, 778 F.3d 635 (2015).
Lodholtz sustained injuries in the factory of Pulliam Enterprises. He filed a lawsuit seeking compensation. Pulliam filed an insurance claim with its insurer, Granite State Insurance and the insurer retained York Risk Services as a claims adjuster. However, neither Granite State nor York ever communicated to Pulliam whether they believed Granite had a duty to defend Pulliam under the terms of the policy.
Subsequently, Pulliam entered into a settlement agreement with Lodholtz and a default judgment was issued. Granite brought an action seeking a declaration that it had no duty to defend or indemnify Pulliam. Lodholtz countered with a lawsuit against Granite and York, alleging breach of contract, bad faith and against York for negligence. York moved for judgment on the pleadings, contending that under Indiana law, a claims adjuster owes no legal duty to the insured. The U.S. District Court granted the motion and this appeal followed.
The United States Court of Appeals, Seventh Circuit, noted that Lodholtz argued that York negligently breached a duty owed to the insured by failing to exercise reasonable care in handling the defense in the underlying lawsuit. York countered that no relationship existed between either York and Pulliam or between York and Lodholtz from which a duty or breach could occur. The court also noted that the Indiana Supreme Court has not addressed the precise issue before the court, and so, the court turned to the decisions of the Court of Appeals of Indiana for guidance.
The Court of Appeals of Indiana noted briefly in a case that an insurance adjuster is an agent of the insurer and so has no direct relationship with the insured. Moreover, the adjuster's duty was solely to the insurer, said the appeals court, and not to the insured. It has been held by the appeals court that "an agent is not liable for harm to a person other than his principal because of his failure adequately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things."
The U.S. Court of Appeals, following the lead of the state appeals court, decided that the Indiana Supreme Court would find that the adjuster as the agent of the insurer would have no duty to the insured. The Circuit Court ruled that an agent is not liable for the harm that befalls a third party by failing to perform under its contract. Moreover, the insurer liability for negligence is premised on the unique nature of insurance contracts, but the adjuster is not a party to such contract; the adjuster's liability is premised on its contract with the insurer and is thus limited to the insurer. Absent an insurance contract, the policy rationales for imposing a duty on a claims adjuster cease to exist.
Lodholtz argued that York owed a common law duty to Pulliam, that York assumed a duty to Pulliam, and that York had actual knowledge that Pulliam was relying on its services. Lodholtz contended that through its actions, York created a relationship akin to that of a third party beneficiary of a contract where the professional has actual knowledge that the services being provided are for the benefit of such third persons. The Circuit Court did not accept these arguments. The court said that to have assumed a duty, the adjuster would have had to specifically and deliberately undertaken the duty that he is charged with having done negligently. In this instance, the uncontroverted evidence shows that York acted in fulfillment of its contractual duties to Granite and on behalf of Granite, and not the insured, Pulliam.
The ruling of the district court was affirmed and the claim against York was dismissed.
Editor's Note: The U.S. Court of Appeals, Seventh Circuit, rules that a claims adjuster is an agent of the insurer, not the insured, and as such, under agency law, the adjuster is not liable for actions taken on behalf of the principal. An adjuster who is retained by an insurer is subject to a duty that runs to the insurer and not to the insured in adjustment of a claim. Moreover, where the adjuster is not a party to the insurance contract, he is not subject to an implied duty of good faith and fair dealing to the insured. |
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| Fraud of the Week |
Policy Inception Fraud—Pennsylvania
AMOUNT: Unknown
A Pennsylvania man has been charged with fraudulently obtaining insurance after an accident occurred and claiming that he had insurance before the accident. Shortly after 6 p.m. on February 12, the man became involved in an auto accident. Seven minutes later, he completed a Progressive Insurance application for a policy from his cell phone and presented the police with the policy number as proof of insurance. He later told a Progressive adjuster that he bought the policy from a computer at work and not from his cell phone. He is charged with felony insurance fraud, and bail was set at $10,000.
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